A Vox reader wrote: “Why are car dealerships so suspicious? How do consumers avoid this? “Are you all frustrated?”
Americans have long hated the car buying experience. It’s not uncommon to spend hours (or even a whole day) at the dealership and, even after finally reaching a deal, leave feeling vaguely deceived.
“It’s a typically stinky process, and it’s designed that way,” says Tom McParland, founder of Automatch Consulting, a service that helps car buyers find the best price for the vehicles they want.
Many complaints are caused by uncertainty about what you will end up paying for. In an age where you can buy almost anything online without interacting with another person and can easily shop around for the best deal, your personal negotiation skills—and sometimes your race, gender, and income—can determine the price of a car.
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Sometimes the tactics used by car salesmen go beyond hard selling and are downright deceptive. One common trap is bait-and-switch pricing, where a car is initially advertised at one price (usually achieved by stacking discounts that you may not otherwise qualify for). When I ran to the dealership to close the deal, I was told that the vehicle was already sold, but similar vehicles were more expensive. Or an example would be yo-yo selling. That’s when you drive home a new car, only to be told a few days later that financing has fallen through and you’ll have to accept a higher interest rate or make a larger down payment. Dealers may try to secretly add unnecessary extras, such as extended warranties or protective coatings, to the total price of your car.
Last year, the Federal Trade Commission received more than 184,000 automobile-related consumer complaints, making it the third most common category behind complaints to credit bureaus, banks and lenders.
Although there are some fair dealers, the auto market is “plenty of abusive and unethical business practices that harm consumers,” says Chuck Bell, director of advocacy programs at Consumer Reports. “By the time the consumer walks out the door, it feels like they’re fighting a battle.”
Why is car shopping done this way?
The first hint that you are on equal footing with a car salesman comes when they are reluctant to provide price quotes over the phone, let alone in writing. McParland says dealers he calls for customers often tell him they have to come to the dealership for a price. “They’re basically just telling us to dig up the sand,” he says.
Dealers want you involved because it’s much easier to upsell that way. If you put a little effort into the process, the salesperson will have a better read on how impatient you are to buy a car, how inexperienced you are with car shopping, and many other factors that can be used to the salesperson’s advantage. You can. On the other hand, if they give you an outdoor price with all the extra costs and fees included before you meet in person, you can easily take the price to a competing dealer and ask them if they can provide better service. Online used car dealers like CarMax and Carvana have made “no-haggle” car prices more popular, but often at a premium, according to McParland. Some traditional car dealerships now also offer fixed prices, but it will probably be to your advantage to try to negotiate.
How did the system come to be like this?
The common practice of negotiating the price of a car instead of paying a fixed price may actually have its origins in horse trading. Here sellers and buyers also bargained, with buyers even trading old horses to offset the price of new ones, just like we do with horses. Car today.
But this model has been around for a long time. That’s in part thanks to state franchise laws that ensure these broker car dealerships can’t be easily shut down. Most states prohibit auto manufacturers from selling directly to consumers. Tesla is a rare exception among car companies that sell directly, and has fought with car dealers for the right to do so. Auto dealer trade groups have significant political influence and are organized and funded enough to lobby against reforms that threaten the status quo, such as changes to franchise laws that give them exclusive rights to sell certain brands of cars in certain territories. It’s abundant. region. The National Automobile Dealers Association (NADA) argues that franchise laws actually increase competitiveness and create local jobs while benefiting consumers.
“They are an incredibly powerful lobby,” Bell says.
See how the industry pushed back against enforcement that reduces auto lending discrimination. Car dealers often arrange financing for their customers, but add an extra amount to the interest rate offered by the bank. This is because the banks can cover the additional costs themselves. How much of a markup is applied is at the dealer’s discretion, and unlike mortgage lenders, they are not required to collect data on a customer’s race, making it much more difficult to ensure they are complying with fair lending laws. . Studies show that car dealers often charge higher interest rates to people of color. When the Consumer Financial Protection Bureau began cracking down on these practices in 2013, the industry fought back and won.
Is there any hope for improving the car buying process?
Nonetheless, there is reason to be optimistic about the future of car shopping. Late last year, the FTC announced new rules targeting some of the most prevalent fraudulent practices used by auto dealers. For example, dealers must disclose the full street price of a car, including all add-ons, before a customer visits the dealership. The price and other terms related to purchasing a car should also be expressed in simple language. Dealers are also not allowed to charge customers for useless add-ons. The FTC estimates that this rule will save customers $3.4 billion and reduce the time they spend car shopping by 72 million hours.
The rules were due to take effect this summer, but were delayed after two car dealer trade groups, including NADA, raised objections. The association told Vox that the rule would make the car buying experience even worse. “Consumers will have to spend an additional 60 to 80 minutes at dealerships, have to fill out up to five new, untested forms, and will lose at least $1.3 billion annually as a result of this rule,” a spokesperson said in an email. It was stated. .
But Bell is confident this rule will eventually take effect, and if you’re looking for a car, you should act as if these protections are already in place. McParland advises asking the dealer to provide an “itemized outdoor price” of the vehicle you’re interested in via email. If they refuse, “that’s usually a red flag, so move on to someone else,” he says. .
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